Acquisition of Harman International Industries by Samsung Electronics
I. Short Case Description
The automotive sector is undergoing extraordinary transformation. Despite its centuries- old heritage; which is primarily stuck on mechanical art, the advancement of technology; and growing awareness of environmental issues has prompted traditional automakers to rethink their strategy. Non-traditional companies such as electronics and IT such as; Samsung, Google, and Apple are also beginning to enter the game. Software and electronics are increasingly important in the car business; with automotive electronics accounting for up to 30% of the cost of a modern vehicles. According to Samsung, the car electronics industry would exceed $100 billion by 2025. Samsung’s first emphasis is on hardware. In the short run, this acquisition may be less dangerous and more profitable [1].
The advent of electric cars with cutting edge technology requires active participation and collaboration from diverse industries requiring cross-over joint ventures and M&As. In this light, Harman International Industries, is being acquired by Samsung Electronics. With an all cash deal worth $8 billion; (or $112 per share representing 28% premium to Nov 11, 2016 closing price). As the electronics tycoon expands its boundaries preparing to become an important player in the automobile industry, this report examines how Samsung increases and integrates its knowledge base and innovation capability through the M&A deal with Harman in attempts to enhance its competitiveness in the rapidly evolving automotive market.
The acquisition completed on March 10, 2017. Following the takeover; Harman functioned as an independent unit with CEO Dinesh Paliwal retaining his responsibilities. Samsung has long been trying to enter the automotive space. Therefore, the acquisition of Harman, an already established player in the arena, makes complete sense, and this is Samsung Electronics’ largest acquisition [2].
Samsung Electronics Before Acquisition
South Korean multinational electronics corporation Samsung Electronics Co., Ltd. is headquartered in the Yeongtong District of Suwon [3]. Samsung Electronics has assembly plants and sales networks in 74 countries and employs around 267.937 people [4]. It is majority-owned by foreign investors [5]. As of 2019, Samsung Electronics is the world’s second largest technology company by revenue, and its market capitalisation stood at US$520.65 billion, the 12th largest in the world [6]. The Company’s most targeted sectors include internet software and services (29%) and software (18%) [2]. Samsung Electronics Co., Ltd. is a manufacturer and marketer of a wide range of consumer electronics; mobile phones, televisions, computers as well as electronic components including batteries, chips, memory, semiconductors, image sensors, camera modules, displays, and hard drives [2]. Samsung services in the tree business division, consumer electronics, IT & mobile communication, and device solution as mention in figure 1.1.
Figure 1.1: Samsung Business Division
Harman International Industries Before Acquisition
HARMAN designs and engineers connected products and solutions for automakers, consumers; and enterprises worldwide, including connected car systems, audio and visual products, enterprise automat ion solutions; and connected services. Harman’s talented workforce and innovation strength create value for its stakeholders; by enabling rich experiences through the connected car, connected enterprise and connected lifestyle.
HARMAN’s portfolio of legendary audio brands includes AKG; Harman Kardon, Infinity, JBL, Lexicon, Mark Levinson and Revel.
Figure 1.2: Harman Business Division
Jbl: is an American company that manufactures audio equipment, including loudspeakers and headphones. JBL Professional serves the studio, installed sound, tour sound; portable sound, cars, production, disc jockey, cinema markets. Harman Kardon: is a division of US- based Harman International Industries; and manufactures home and car audio equipment.
AKG: is an acoustics engineering and manufacturing company, mostly consist of microphones; headphones, wireless audio systems and related accessories for professional and consumer markets.
Infinity Systems: is an American manufacturer of loudspeakers. Since 1983, Infinity has been part of Harman International Industries. Produces range of audio applications, including multichannel surround sound home theatre packages; in-wall home speakers, and marine applications, powered subwoofers and car audio amplifiers.
More than 50 million vehicles on the road today enjoy an enhanced driving experience; thanks to HARMAN audio and infotainment. Seizing the rich opportunities of today’s global markets requires more than legendary sound. HARMAN has reshaped their organisation and cost structure to make the company more agile in a changing world and addressed the rising importance of highly integrated, software-rich products and services [6].
Besides, Harman reported $7 billion in revenues for the year ended Sep 30, 2016; out of which nearly 65% were automotive related. Harman works with brands such as Volkswagen, Toyota, Audi, BMW, Fiat, Harley-Davidson and Mercedes-Benzes [10]. More importantly, the order backlog stands at an impressive $24 billion.[8] HARMAN has a workforce of approximately 30,000 people across the Americas, Europe, and Asia [7].
Figure 1.3: Harman Brands
